An investment project requires a net investment of $100,000. The project is expected to generate annual net cash inflows of $28,000 for the next 5 years. The firm's cost of capital is 12%. Determine the net present value for the project.
A) $940
B) $100,940
C) $77,884
D) $40,000

Question

Quizplus · Accepted Answer

The net present value (NPV) is calculated by discounting the future cash inflows at the firm's cost of capital and subtracting the initial investment. The NPV is approximately $940, calculated as follows: NPV = ($28,000 / (1+0.12)^1) + ($28,000 / (1+0.12)^2) + ($28,000 / (1+0.12)^3) + ($28,000 / (1+0.12)^4) + ($28,000 / (1+0.12)^5) - $100,000.

An Investment Project Requires a Net Investment of $100,000